/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, AB,
May 12,
2022 /CNW/ - Cathedral Energy Services Ltd. (the
"Company" or "Cathedral") (TSX: CET) announces its consolidated
financial results for the three months ended March 31, 2022 and 2021.
Dollars in 000's except per share amounts.
This news release contains "forward-looking statements"
within the meaning of applicable Canadian securities laws.
For a full disclosure of forward-looking statements and the risks
to which they are subject, see "Forward-Looking Statements" later
in this news release. This news release contains references
to Adjusted gross margin (gross margin plus non-cash items of
depreciation and share-based compensation), Adjusted gross margin %
(adjusted gross margin divided by revenues) and Adjusted EBITDA
(earnings before finance costs, unrealized foreign exchange on
intercompany balances, taxes, depreciation, non-recurring costs
(including severance and non-cash provision for bad debts),
write-down of equipment, write-down of inventory and share-based
compensation). These terms do not have standardized meanings
prescribed under International Financial Reporting Standards (IFRS)
and may not be comparable to similar measures used by other
companies, see "Non-GAAP Measures" later in this news
release.
FINANCIAL HIGHLIGHTS
Dollars in 000's except per share amounts
|
|
|
Three months
ended March 31
|
|
|
|
2022
|
2021
|
Revenues
|
|
|
$
34,385
|
$
11,365
|
Adjusted gross margin %
(1)
|
|
|
29%
|
21%
|
Adjusted EBITDAS
(1)
|
|
|
$
6,913
|
$
825
|
Cash flow - operating
activities
|
|
|
$
(1,758)
|
$
(408)
|
Income (loss) from
operating activities
|
|
|
$
2,351
|
$
(2,240)
|
Basic and diluted per
share
|
|
|
$
0.03
|
$
(0.05)
|
Net income
(loss)
|
|
|
$
2,243
|
$
(2,086)
|
Basic and diluted per
share
|
|
|
$
0.02
|
$
(0.04)
|
Equipment additions -
cash basis
|
|
|
$
3,304
|
$
591
|
Weighted average shares
outstanding
|
|
|
|
|
Basic (000s)
|
|
|
91,297
|
50,133
|
Diluted
(000s)
|
|
|
93,515
|
49,468
|
|
|
|
March 31
|
December 31
|
|
|
|
2022
|
2021
|
Working
capital
|
|
|
$
15,029
|
$
14,117
|
Total assets
|
|
|
$
107,051
|
$
75,423
|
Loans and borrowings,
excluding current portion
|
|
|
$
15,310
|
$
5,035
|
Shareholders'
equity
|
|
|
$
53,732
|
$
42,504
|
(1) Refer to
"NON-GAAP MEASUREMENTS"
|
|
|
|
|
2022 Q1 KEY TAKEAWAYS
- Continued execution of the Company's consolidation strategy
with the accretive acquisition of Discovery Downhole Services, a
US-based mud motor technology company, for $22,471
- Revenues increased by $23,020 or
203% from $11,365 in 2021 Q1 to
$34,385 in 2022 Q1, representing the
highest quarterly revenues since 2019 Q1;
- Adjusted EBITDAS increased from $825 in 2021 Q1 to $6,913 in 2022 Q1, representing the highest
quarterly Adjusted EBITDAS since 2014 Q4;
- Net income was $2,243 compared to
a loss of ($2,240) in 2021 Q1,
representing the highest quarterly Net income since 2018 Q3;
- Canadian market share reached 19.9%, its highest level on
Company record; and
- Subsequent to 2022 Q1, the Company raised $26,451 gross proceeds through a bought deal
equity financing, one of the first to be completed in the Canadian
energy services sector in the past four years.
PRESIDENT'S MESSAGE
Comments from President & CEO Tom
Connors:
In the first quarter of 2022, the benefit of our strategy began
to show results with more than triple the revenue from the same
quarter last year, our highest adjusted quarterly EBITDAS in eight
years and increase in our Canadian market share to 19.9%, our
highest level on Company record.
Higher commodity prices and improved cash flow projections for
oil and gas producers led to expanded drilling programs and
increased demand for our services in the first quarter of 2022.
Cathedral recorded higher activity levels and day rates in our
Canadian operations over both the first quarter of last year, and
the fourth quarter of 2021. Our improved operating performance
drove solid financial results with revenue up $23,020 and Adjusted EBITDAS growing more
than 700% to $6,913 from the
same quarter last year. Adjusted gross margin also improved,
increasing by 740 basis points compared to the same quarter last
year due to lower repair costs that were partially offset by
increased labour costs.
During the quarter, Cathedral reaffirmed its position as the
leading consolidator in the industry with the successful
acquisition of Discovery Downhole Services, which provided us with
strategic growth in the U.S. motor technology rental business. To
date, integration of this business is going well, and results have
been in line with our expectations. We continue to believe that
consolidation in the directional drilling industry is needed to
create a sustainable, efficient sector that can thrive in the
future. We see additional opportunities to add value for customers
and shareholders in both Canada
and the U.S., and we are carefully evaluating prospects,
selectively looking for ways to grow strategically while not
placing undo pressure on our capital structure.
The industry is emerging from a prolonged period of
reduced investment in global energy infrastructure meaning
tightened supply and demand fundamentals and higher commodity
prices projected for some time into the future. Recent geopolitical
events have further impacted commodity prices and raised concerns
around energy security. This backdrop is fueling a sustained
increase in drilling and development activity in both Canada and the U.S., and stronger demand for
oilfield services. We expect industry conditions to remain strong
in the near-to-medium term and anticipate increased demand for our
services. With our expanded operations base, well-skilled team and
high-quality equipment, we are well positioned to take full
advantage of these strong industry conditions.
At Cathedral, we understand the importance of maintaining our
position as an industry-leader and are continuing to reinvest in
our business. For 2022, our capital expenditure plan remains
approximately $14,900, focused
largely on adding new mud motors, and the completion of the 18
RapidFireTM Measurement-While-Drilling ("MWD") systems from our
2021 build program.
Our conservative balance sheet, high-quality assets and strong
customer relationships position us to leverage these robust
industry conditions. Subsequent to the first quarter, Cathedral
raised $26,400 through a bought deal
equity financing, one of the first to be completed in the Canadian
energy services sector in the past four years and a clear sign of
improving sentiment towards our industry. Due to strong interest in
this financing, Cathedral increased the size of its initial
offering and fully exercised its overallotment option. The funds
will be used to take advantage of ongoing industry strength by
lowering debt, funding our capital expenditure program and
improving liquidity.
As we move into the second half of 2022, we are carrying
positive momentum, and broadening our customer base thanks to
strong demand, our state-of-the-art technology and industry-leading
customer service. This, coupled with new customers added through
our recent acquisitions, gives us confidence in the continued
expansion of our market share in 2022 in Canada and the U.S. Furthermore, our
strengthened financial position, following our equity financing,
adds additional flexibility and agility to our balance sheet,
allowing us to capitalize on future opportunities as they
emerge.
2022 ACQUISITIONS
On February 10, 2022, the Company
announced the closing of Cathedral's acquisition of the operating
assets of Discovery Downhole Services ("Discovery"). The
Transaction includes the operating assets and non-executive
personnel of Discovery's U.S.-based, high-performance mud motor
technology rental business with operations in North Dakota, Texas, and Wyoming. The transaction will
materially increase the Company's U.S. revenues and add a
high-quality customer base of oil and gas producers and directional
drilling companies active in all the major U.S. land basins.
Cathedral paid $18,160 in cash
funded by a new term loan from its existing bank along with funds
raised in a common share private placement and issued 5,254,112
common shares (the "Consideration Shares"). The shares were
valued at $0.52 for accounting
purposes (total of $2,732). In
addition to a 4-month statutory hold period on the Consideration
Shares, the parties have agreed to contractual restrictions on
resale as follows: 25% are restricted until February 10, 2023; a further 25% of are
restricted until August 10, 2023; and
a further 50% are restricted until February
10, 2024, subject to certain exceptions. Additionally,
Cathedral assumed the leases at the three operating locations for
lease liabilities of $1,579.
Total consideration paid was $22,471.
While the purchase and sale agreement was structured as an asset
sale, the Company will account for this transaction as a business
combination. The Company has allocated the purchase price
as:
- Right of use asset $1,579;
and
- Equipment $20,892.
To date, the Company has expensed $31 in costs related to the Transaction.
RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31
Revenues
|
|
2022
|
2021
|
Canada
|
|
$
25,399
|
$
8,100
|
United
States
|
|
8,986
|
3,265
|
Total
|
|
$
34,385
|
$
11,365
|
Revenues 2022 Q1 revenues were
$34,385, which represented an
increase of $23,020 or 203% from 2021
Q1 revenues of $11,365.
Canadian revenues (excluding motor rental revenues) increased to
$24,467 in 2022 Q1 from $7,440 in 2021 Q1; a 229% increase. This
increase was the result of: i) a 163% increase in activity days to
3,053 in 2022 Q1 from 1,163 in 2021 Q1 and ii) a 25% increase in
the average day rate to $8,014 in
2022 Q1 from $6,397 in 2021
Q1.
Based on publicly disclosed Canadian drilling and directional
drilling days, Cathedral's market share for 2022 Q1 was 19.9%
compared to 10.4% in 2021 Q1. Day rates increased due to
certain ancillary revenues along with overall increases in day
rates.
U.S. revenues (excluding motor rental revenues) increased 50% to
$4,067 in 2022 Q1 from $2,706 in 2021 Q1. This increase was the
result of: i) a 53% increase in activity days to 426 in 2022 Q1
from 279 in 2021 Q1; net of ii) a 2% decrease in the average day
rate to $9,546 in 2022 Q1 from
$9,699 in 2021 Q1 (when converted to
Canadian dollars).
The average active land rig count for the U.S. was up 65% in
2022 Q1 compared to 2021 Q1 (source: Baker Hughes). The
Company experienced a 31% increase in rigs followed resulting in a
decrease in market share compared to 2021 Q1. Day rates in
USD decreased 2% to $7,536 USD in
2022 Q1 from $7,659 USD in 2021
Q1. Revenue day rates decreased due to a 2022 Q1 decrease in
revenues from providing RSS services which are rented from a 3rd
party. The RSS services command a higher day rate than our
regular drilling services.
Motor rentals increased in both Canada and the U.S. Combined rental
revenues increased to $5,852 in 2022
Q1 compared to $1,219 in 2021
Q1. Rentals were up due to the Discovery acquisition and the
overall industry increase in drilling activity.
Gross margin and adjusted gross
margin Gross margin for 2022 Q1 was 16%
compared to (4%) in 2021 Q1. Adjusted gross margin (see
Non-GAAP Measurements) for 2022 Q1 was $9,861 or 29% compared to $2,420 or 21% for 2021 Q1.
Adjusted gross margin, as a percentage of revenue, increased due
to lower repairs and a reduction in fixed costs as percentage of
revenue, partially offset by increases in rentals.
Depreciation of equipment allocated to cost of sales increased
to $4,289 in 2022 Q1 from
$2,887 in 2021 Q1 due to the asset
acquisitions in 2021 and 2022. Depreciation included in cost
of sales as a percentage of revenue was 12% for 2022 Q1 and 25% in
2021 Q1.
Selling, general and administrative ("SG&A")
expenses
SG&A expenses were $3,781 in 2022
Q1; an increase of $2,016 compared
with $1,765 in 2021 Q1. There
were increases in SG&A wages, commissions and reduced CEWS
grants. As a percentage of revenue, SG&A was 11% in 2022
Q1 compared to 16% in 2021 Q1.
Technology group expenses
Technology group expenses were $219
in 2022 Q1; an increase of $31
compared with $188 in 2021 Q1.
Technology group expenses are related to new product development
and supporting and upgrading existing technology. Technology group
expenses consist of salaries and related benefits and burdens as
well as shop supplies.
Gain (loss) on disposal of
equipment During 2022 Q1, the Company
had a gain on disposal of equipment of $822 compared to $188 in 2021 Q1. These gains are mainly
related to equipment lost-in-hole. Proceeds from clients on
lost-in-hole equipment are based on amounts specified in service
agreements. The timing of lost-in-hole recoveries is not in
the control of the Company and therefore can fluctuate
significantly from quarter-to-quarter. In 2022 Q1, the
Company received proceeds on disposal of equipment of $1,233 (2021 Q1 - $221).
Finance costs Finance costs
consisting of interest expenses on loans and borrowings and bank
charges were $229 for 2022 Q1
compared $83 for 2021 Q1 due to the
increase in debt level and increases in interest rates.
Finance costs lease liability The
lease liability interest decreased slightly to $189 from $209.
Foreign exchange The Company had
a foreign exchange gain of $310 in
2022 Q1 compared to $446 in 2021 Q1
due to the fluctuations of the Canadian dollar relative to the U.S.
dollar. The Company's foreign operations are denominated in
USD and therefore, upon consolidation, gains and losses due to
fluctuations in the foreign currency exchange rates are recorded as
other comprehensive income on the balance sheet as a component of
equity. However, gains and losses in the Canadian entity on
U.S. denominated intercompany balances continue to be recognized in
the statement of comprehensive income (loss). Included in the
2022 Q1 foreign currency gain is an unrealized gain of $295 (2021 Q1 –$444) related to intercompany
balances.
Income tax Income tax expense is
booked based upon expected annualized rates using the statutory
rates of 25.5% for Canada and 23%
for the U.S. The provision for current taxes has been fully offset
by the benefit of tax attributes not previously recognized.
LIQUIDITY AND CAPITAL RESOURCES
Overview On an annualized basis,
the Company's principal source of liquidity is cash generated from
operations and proceeds from equipment lost-in-hole. In
addition, the Company has the ability to fund liquidity
requirements through its credit facility and the issuance of debt
and/or equity. Cash flow - operations in 2022 was a use
of cash of ($1,758) compared to
($408) in 2021. The decrease in cash
for 2022 was primarily to fund the increase in accounts receivable
since December 31 of $11,506 resulting from the improvement in North
American oilfield service activity, partially offset by increases
in cash flow from improved drilling activity in 2022 and
Cathedral's increase in Canadian market share.
Working capital At March 31, 2022 the Company had working capital of
$15,029 (December 31, 2021 - $14,117).
Credit facility In February 2022, the Company entered into an
Amended and Restated Credit Agreement with its current lender (the
"Facility"). The Company's Facility consists of a
$12,000 operating facility and a term
facility in the amount of the Canadian equivalent of $14,250 USD both with a single lender, ATB
Financial ("ATB"), which expire June
30, 2023. The Facility is secured by a general
security agreement over all present and future personal
property. The Facility provides a definition of EBITDA
("Credit Agreement EBITDA") to be used in calculation of financial
covenants.
The Facility bears interest at the financial institution's prime
rate plus 1.75% to 3.25% or bankers' acceptance rate plus 3.00% to
4.25% with interest payable monthly. Interest rate spreads
for the Facility depend on the level of funded debt compared to the
12-month trailing Credit Agreement EBITDA. The Facility
provides a means to lock in a portion of the debt at interest rates
through bankers' acceptances ("BA") based on the interest rate
spread on the date the BA was entered into.
While the term facility will be amortized over five years it has
a maturity of June 2023 as with the
existing Facility. The amortization will be based on a
variable interest rate consistent with the Company's existing
operating facility interest rates with required monthly payments of
$303 for principal plus prevailing
interest.
The Facility provided an alternative definition of Credit
Agreement EBITDA to allow pro-rating Credit Agreement EBITDA to a
12-month equivalent ("Consolidated EBITDA Annualization Period")
which was to end March 31,
2022. During reporting periods in which the alternative
definition of Credit Agreement EBITDAS was in effect, the Company's
loans bore interest at the highest marginal rate. However,
the agreement allowed Cathedral to opt out of the alternative
calculation and the Company exercised this option prior to
March 31, 2022.
The financial covenants associated with the Facility that will
be tested commencing 2022 Q1 are:
- Consolidated Funded Debt to Consolidated Credit Agreement
EBITDA ratio shall not exceed 3.0:1; and
- Consolidated Fixed Charge Coverage ratio shall not be less than
1.25:1.
Compliance with Facility covenants
At March 31, 2022, the Company had
drawn $1,395 of its operating
facility, $17,554 on the term
facility and had $41 in cash.
The Company was in compliance with all covenants at March 31, 2022.
Current facility - Highly Affected Sectors Credit
Availability Program ("HASCAP")
In June 2021, the Company applied
for and received a further $1,000 of
liquidity from HASCAP. The incremental $1,000 non-revolving loan is fully drawn and is
in addition to the Company's Facility. The demand loan has an
interest rate of 4% and is amortized over a ten-year period.
Repayment terms are interest only for the first year, and principal
plus interest for the remaining nine years, payable on a monthly
basis. The HASCAP Loan is secured by a general security
interest over all present and after acquired personal property of
the Company granted in favour of ATB.
Contractual obligations In the
normal course of business, the Company incurs contractual
obligations and those obligations are disclosed in the Company's
annual financial statements for the year ended December 31, 2021.
As at March 31, 2022, the
Company's has a commitment to purchase equipment of $1,477 which is expected to be incurred in 2022
Q2 and Q3.
The Company has issued the following six letters of credit
("LOC"):
- three securing rent payments on property leases and renew
annually with the landlords. Two LOCs total $700 CAD for the first ten years of the lease and
then reduce to $500 for the last five
years of the leases. The third LOC is currently for $630 USD and increases annually based upon annual
changes in rent;
- two securing the Company's corporate credit cards in the
amounts of $75 CAD and $175 USD; and
- one in lieu of cash deposit for utilities in the amounts of
$55 CAD.
Subsequent events On
April 5, 2022, the Company announced
and subsequently closed on April 25,
2022 a bought deal financing of 37,786,700 Units at a price
of $0.70 per Unit, for aggregate
gross proceeds of $26,451. Net
of issue costs, the Company received $25,018 Each Unit is comprised of one common
share in the capital of the Company (a "Common Share") and one-half
of one Common Share purchase warrant (each whole Common Share
purchase warrant, a "Warrant"). Each Warrant will be exercisable to
acquire one additional Common Share (a "Warrant Share") for a
period of 12 months following the closing of the Offering at an
exercise price of $0.85 per Warrant
Share, subject to adjustment in certain events. The Warrants will
began trading on April 25, 2022 on
the Toronto Stock Exchange (the "TSX") under the symbol
"CET.WT".
Pursuant to the financing agreement, $8,777 of the bought deal financing proceeds were
used to reduce the term loan.
Additionally, on April 7, 2022 the
Company accepted an offer to purchase its land and building for
$2,150. This land and building
was acquired in 2021 in the purchase of assets from Precision
Drilling Corporation ("Precision"). Pursuant to a side letter
to the purchase and sale agreement, Cathedral will receive the
first $1,500 of proceeds and any
selling expenses and the excess proceeds will be allocated 25% to
Cathedral and 75% to Precision.
Share capital At May 12, 2022, the Company has 138,111,297 common
shares, 21,468,350 common share purchase warrants and 6,829,368
options outstanding with a weighted average exercise price of
$0.23.
In 2022 Q1, the Company issued 380,000 stock options to staff
with an exercise price of $0.77 per
option.
OUTLOOK
The North American oil and gas industry fundamentals remain
robust for 2022 and beyond, despite the near-to-medium term
uncertainty created by Russia's
war in Ukraine and global
inflation.
Oil benchmarks West Texas Intermediate (WTI) and Western
Canadian Select (WCS) have performed strongly year-to-date, up 33%
and 36% respectively, as at May 10,
2022. Natural gas has experienced similar price expansion in
both Canada and the USA over the same period. The Canadian
benchmark AECO has increased 72% year-to-date and USA NYMEX natural gas has more than doubled,
up 108%. These strong hydrocarbon prices have boosted oil and gas
producer cash flow levels to pre-2015 levels and are resulting in
increased activity for North American service companies. (source:
https://oilprice.com/)
The Canadian 2022 Q1 average rig count surpassed 190 rigs,
peaking above 220 rigs. The 2022 Q2 rig count in Canada is always depressed due to Spring
break-up, but is still trending to be the busiest second quarter in
the past eight years. Further, analysts continue to revise
their estimates upwards for 2022 H2 and 2023. The consensus now
suggests that both 2022 Q3 and 2022 Q4 will be as active as 2022
Q1. The first quarter is traditionally the busiest quarter in
Canada so this speaks to the
meaningful impact the current commodity prices are having on
activity.
Land rig counts in the USA have
shown very consistence progress, posting higher week-over-week
figures in 84 of the last 89 weeks. The American rig count
troughed in August-2020 at approximately 230 rigs and has now
nearly tripled to 680 rigs in May of this year, with the Permian
and Haynesville plays leading this growth. 2022 Q1 averaged 620
rigs which surpassed many analysts' initial 2022 exit rig
projections. Consensus now forecasts in excess of 700 active
rigs for 2022 H2 in the USA, and
closer to 800 active units through 2023.
(sources: ATB Capital Markets, Baker Hughes Company, BMO Capital
Markets, National Bank of Canada Financial Markets, Peters & Co
Limited, Raymond James Ltd., and TD Securities Inc.)
Labour continues to be the limiting factor in the service
industry's ability to meet current strong demand, along with supply
chain constraints on certain specialty products, due in part to the
conflict in Ukraine. Service company pricing remains
materially below peak levels, but will need to rise to address the
inflationary pressures presented by these workforce shortages and
logistics challenges, and to provide positive returns to
shareholders. The current macro-economic factors, combined
with oil and gas producers' steadily growing free cash flow,
provide a constructive environment to achieve more sustainable
oilfield service pricing levels in the back half of this year and
into 2023.
FORWARD LOOKING STATEMENTS
This news release contains certain forward-looking statements
and forward-looking information (collectively referred to herein as
"forward-looking statements") within the meaning of applicable
Canadian securities laws. All statements other than
statements of present or historical fact are forward-looking
statements. Forward-looking statements are often, but not
always, identified by the use of words such as "anticipate",
"achieve", "believe", "plan", "intend", "objective", "continuous",
"ongoing", "estimate", "outlook", "expect", "may", "will",
"project", "should" or similar words suggesting future
outcomes. In particular, this news release contains
forward-looking statements relating to, among other things: we see
additional opportunities to add value for customers and
shareholders in both Canada and
the U.S., and we are carefully evaluating prospects; we expect
industry conditions to remain strong in the near-to-medium term and
anticipate increased demand for our services; with our expanded
operations base, well-skilled team and high-quality equipment, we
are well positioned to take full advantage of these strong industry
conditions; , our strengthened financial position, following our
equity financing, adds additional flexibility and agility to our
balance sheet, allowing us to capitalize on future opportunities as
they emerge; the North American oil and gas industry fundamentals
remain robust for 2022 and beyond, despite the near-to-medium term
uncertainty created by Russia's
war in Ukraine and global
inflation; 2022 Q2 Canadian rig count is trending to be the busiest
second quarter in the past eight years; both 2022 Q3 and 2022
Q4 will be as active as 2022 Q1 in Canada; in excess of 700 active rigs for 2022
H2 in the U.S., and closer to 800 active units through 2023; the
current macro-economic factors, combined with oil and gas
producers' steadily growing free cash flow, provide a constructive
environment to achieve more sustainable oilfield service pricing
levels in the back half of this year and into 2023; and projected
capital expenditures and commitments and the financing thereof.
The Company believes the expectations reflected in such
forward-looking statements are reasonable as of the date hereof but
no assurance can be given that these expectations will prove to be
correct and such forward-looking statements should not be unduly
relied upon.
Various material factors and assumptions are typically applied
in drawing conclusions or making the forecasts or projections set
out in forward-looking statements. Those material factors and
assumptions are based on information currently available to the
Company, including information obtained from third party industry
analysts and other third party sources. In some instances,
material assumptions and material factors are presented elsewhere
in this MD&A in connection with the forward-looking
statements. You are cautioned that the following list of
material factors and assumptions is not exhaustive. Specific
material factors and assumptions include, but are not limited
to:
- the performance of Cathedral's business
- impact of economic and social trends;
- oil and natural gas commodity prices and production
levels;
- the ongoing impact of the global health crisis and
COVID-19;
- capital expenditure programs and other expenditures by
Cathedral and its customers;
- the ability of Cathedral to retain and hire qualified
personnel;
- the ability of Cathedral to obtain parts, consumables,
equipment, technology, and supplies in a timely manner to carry out
its activities;
- the ability of Cathedral to maintain good working relationships
with key suppliers;
- the ability of Cathedral to retain customers, market its
services successfully to existing and new customers and reliance on
major customers;
- risks associated with technology development and intellectual
property rights;
- obsolesce of Cathedral's equipment and/or technology;
- the ability of Cathedral to maintain safety performance;
- the ability of Cathedral to obtain adequate and timely
financing on acceptable terms;
- the ability of Cathedral to comply with the terms and
conditions of its credit facility;
- the ability to obtain sufficient insurance coverage to mitigate
operational risks;
- currency exchange and interest rates;
- risks associated with future foreign operations;
- the ability of Cathedral to integrate its transactions and the
benefits of any acquisitions, dispositions and business development
efforts;
- environmental risks;
- business risks resulting from weather, disasters and related to
information technology;
- changes under governmental regulatory regimes and tax,
environmental, climate and other laws in Canada and the U.S.; and
- competitive risks.
Forward-looking statements are not a guarantee of future
performance and involve a number of risks and uncertainties some of
which are described herein. Such forward-looking statements
necessarily involve known and unknown risks and uncertainties,
which may cause the Company's actual performance and financial
results in future periods to differ materially from any projections
of future performance or results expressed or implied by such
forward-looking statements. These risks and uncertainties
include, but are not limited to, the risks identified in this
MD&A and in the Company's Annual Information Form under the
heading "Risk Factors". Any forward-looking statements are
made as of the date hereof and, except as required by law, the
Company assumes no obligation to publicly update or revise such
statements to reflect new information, subsequent or otherwise.
All forward-looking statements contained in this MD&A are
expressly qualified by this cautionary statement. Further
information about the factors affecting forward-looking statements
is available in the Company's current Annual Information Form that
has been filed with Canadian provincial securities commissions and
is available on www.sedar.com.
NON-GAAP MEASUREMENTS
Cathedral uses certain performance measures throughout this
document that are not defined under GAAP. Management believes that
these measures provide supplemental financial information that is
useful in the evaluation of Cathedral's operations and are commonly
used by other oilfield companies. Investors should be cautioned,
however, that these measures should not be construed as
alternatives to measures determined in accordance with GAAP as an
indicator of Cathedral's performance. Cathedral's method of
calculating these measures may differ from that of other
organizations, and accordingly, may not be comparable.
The specific measures being referred to include the
following:
i) "Adjusted gross margin" -
calculated as gross margin plus non-cash items (depreciation and
share-based compensation); is considered a primary indicator of
operating performance (see tabular calculation);
ii) "Adjusted gross margin %" -
calculated as adjusted gross margin divided by revenues; is
considered a primary indicator of operating performance (see
tabular calculation);
iii) "Adjusted EBITDAS" - defined as earnings
before finance costs, unrealized foreign exchange on intercompany
balances, taxes, depreciation, non-recurring costs (including
severance and non-cash provision for bad debts), write-down of
equipment, write-down of inventory and share-based compensation; is
considered an indicator of the Company's ability to generate funds
flow from operations prior to consideration of how activities are
financed, how the results are taxed and non-cash expenses (see
tabular calculation);
The following tables provide reconciliations from GAAP
measurements to non-GAAP measurements referred to in this
MD&A:
Adjusted gross margin
|
|
|
|
Three months
ended March 31
|
|
|
|
2022
|
2021
|
Gross margin
|
|
|
$
5,529
|
$
(475)
|
Add non-cash items
included in cost of sales:
|
|
|
|
|
Depreciation
|
|
|
4,289
|
2,887
|
Share-based
compensation
|
|
|
43
|
8
|
|
|
|
|
|
Adjusted gross
margin
|
|
|
$
9,861
|
$
2,420
|
|
|
|
|
|
Adjusted gross margin
%
|
|
|
29%
|
21%
|
Adjusted EBITDAS
|
|
|
|
Three months ended
March 31
|
|
|
|
2022
|
2021
|
Income (loss) before
income taxes
|
|
|
$
2,243
|
$
(2,086)
|
Add:
|
|
|
|
|
Depreciation included
in cost of sales
|
|
|
4,289
|
2,887
|
Depreciation included
in selling, general and administrative expenses
|
|
|
124
|
134
|
Share-based
compensation included in cost of sales
|
|
|
43
|
8
|
Share-based
compensation included in selling, general and administrative
expenses
|
|
|
91
|
21
|
Finance
costs
|
|
|
229
|
83
|
Finance costs lease
liabilities
|
|
|
189
|
209
|
|
|
|
|
|
Subtotal
|
|
|
7,208
|
1,256
|
Unrealized foreign
exchange gain on intercompany balances
|
|
|
(295)
|
(444)
|
Non-recurring
expenses
|
|
|
-
|
13
|
|
|
|
|
|
Total Adjusted
EBITDAS
|
|
|
$
6,913
|
$
825
|
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
March 31, 2022
and 2021
Dollars in '000s
(Unaudited)
|
March
31
|
December
31
|
|
2022
|
2021
|
Assets
|
|
|
Current
assets:
|
|
|
Cash
|
$
41
|
$
2,898
|
Trade
receivables
|
27,115
|
15,609
|
Prepaid
expenses
|
1,994
|
1,438
|
Inventories
|
9,902
|
8,423
|
|
|
|
Total current
assets
|
39,052
|
28,368
|
Equipment
|
53,707
|
35,044
|
Land and building held
for resale
|
1,500
|
-
|
Intangible
assets
|
1,303
|
1,491
|
Right of use
asset
|
11,489
|
10,520
|
|
|
|
Total non-current
assets
|
67,999
|
47,055
|
Total assets
|
$
107,051
|
$
75,423
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
Current
liabilities:
|
|
|
Trade and other
payables
|
$
16,615
|
$
11,069
|
Current taxes
payable
|
63
|
55
|
Loans and borrowings,
current
|
4,639
|
1,000
|
Lease liabilities,
current
|
2,706
|
2,127
|
|
|
|
Total current
liabilities
|
24,023
|
14,251
|
Loans and borrowings,
long-term
|
15,310
|
5,035
|
Lease liabilities,
long-term
|
13,986
|
13,633
|
|
|
|
Total non-current
liabilities
|
29,296
|
18,668
|
Total
liabilities
|
53,319
|
32,919
|
|
|
|
Shareholders'
equity:
|
|
|
Share
capital
|
108,149
|
98,918
|
Contributed
surplus
|
11,903
|
11,793
|
Accumulated other
comprehensive income
|
8,655
|
9,011
|
Deficit
|
(74,975)
|
(77,218)
|
|
|
|
Total shareholders'
equity
|
53,732
|
42,504
|
Total liabilities and
shareholders' equity
|
$
107,051
|
$
75,423
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME (LOSS)
Three months ended
March 31, 2022 and
2021
Dollars in '000s except per share amounts
(Unaudited)
|
Three months ended
March 31
|
|
2022
|
2021
|
Revenues
|
$
34,385
|
$
11,365
|
Cost of
sales:
|
|
|
Direct costs
|
(24,524)
|
(8,945)
|
Depreciation
|
(4,289)
|
(2,887)
|
Share-based
compensation
|
(43)
|
(8)
|
Total cost of
sales
|
(28,856)
|
(11,840)
|
Gross margin
|
5,529
|
(475)
|
Selling, general and
administrative expenses:
|
|
|
Direct costs
|
(3,566)
|
(1,610)
|
Depreciation
|
(124)
|
(134)
|
Share-based
compensation
|
(91)
|
(21)
|
Total selling, general
and administrative expenses
|
(3,781)
|
(1,765)
|
Technology group
expenses
|
(219)
|
(188)
|
Gain on disposal of
equipment
|
822
|
188
|
Income (loss) from
operating activities
|
2,351
|
(2,240)
|
Finance
costs
|
(229)
|
(83)
|
Finance costs lease
liability
|
(189)
|
(209)
|
Foreign exchange
gain
|
310
|
446
|
|
|
|
Net income
(loss)
|
2,243
|
(2,086)
|
Other comprehensive
loss:
|
|
|
Foreign currency
translation differences for foreign operations
|
(356)
|
(453)
|
|
|
|
Total comprehensive
income (loss)
|
$
1,887
|
$
(2,539)
|
|
|
|
Net income (loss) per
share
|
|
|
Basic and
diluted
|
$
0.02
|
$
(0.04)
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS
Three months ended March
31, 2022 and 2021
Dollars in '000s
(Unaudited)
|
Three months ended
March 31
|
|
2022
|
2021
|
Cash provided by
(used in):
|
|
|
Operating
activities:
|
|
|
Net income(loss) before
income taxes
|
$
2,243
|
$
(2,086)
|
Items not involving
cash
|
|
|
Depreciation
|
4,413
|
3,021
|
Share-based
compensation
|
134
|
29
|
Gain on disposal of
equipment
|
(822)
|
(188)
|
Finance
costs
|
229
|
83
|
Finance costs lease
liability
|
189
|
209
|
Unrealized foreign
exchange gain on intercompany balances
|
(295)
|
(444)
|
|
|
|
Cash flow - continuing
operations
|
6,091
|
624
|
Changes in non-cash
operating working capital
|
(7,857)
|
(1,032)
|
Income taxes
paid
|
8
|
-
|
|
|
|
Cash flow - operating
activities
|
(1,758)
|
(408)
|
|
|
|
Investing
activities:
|
|
|
Equipment additions in
normal course
|
(3,304)
|
(591)
|
Equipment additions by
acquisition
|
(18,160)
|
-
|
Proceeds on disposal of
equipment
|
1,233
|
221
|
Changes in non-cash
investing working capital
|
(205)
|
(389)
|
|
|
|
Cash flow - investing
activities
|
(20,436)
|
(759)
|
|
|
|
Financing
activities:
|
|
|
Advances of loans and
borrowings
|
19,859
|
2,073
|
Repayments on loans and
borrowings
|
(5,944)
|
-
|
Payments on lease
liabilities
|
(603)
|
(580)
|
Interest
paid
|
(418)
|
(292)
|
Payment on
settlements
|
-
|
(38)
|
Proceeds on share
issuance
|
6,474
|
230
|
|
|
|
Cash flow - financing
activities
|
19,368
|
1,393
|
Effect of exchange rate
on changes on cash
|
(31)
|
(14)
|
Change in
cash
|
(2,857)
|
212
|
Cash, beginning of
year
|
2,898
|
1,034
|
Cash, end of
year
|
$
41
|
$
1,246
|
Cathedral Energy Services Ltd., based in Calgary, Alberta is incorporated under the
Business Corporations Act (Alberta) and operates in the U.S. under
Cathedral Energy Services Inc. Cathedral is publicly traded on the
Toronto Stock Exchange under the symbol "CET". Cathedral is a
trusted partner to North American energy companies requiring high
performance directional drilling services. We work in partnership
with our customers to tailor our equipment and expertise to meet
their specific geographical and technical needs. Our experience,
technologies and responsive personnel enable our customers to
achieve higher efficiencies and lower project costs. For more
information, visit www.cathedralenergyservices.com.
SOURCE Cathedral Energy Services Ltd.